4th September 2019 Market Update
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?? GBP – Sterling had a choppy day yesterday as it fell quickly throughout the early morning in anticipation of the no deal challenge from a group of MPs. It initially reached a 3 year low against the US Dollar before finding some support. Sterling gained in the mid afternoon as a result of poor manufacturing data from the US. A high-profile defection of Conservative MP Phillip Lee to the Liberal Democrats while Boris was speaking in Parliament gave the Pound further impetus as the working majority was lost in a very public manner. The gains continued so that Sterling finished the day higher following the Conservative rebels and opposition MPs successfully voting to take control of the Parliamentary agenda.
Today is another crucial day at Westminster. Sajid Javid will deliver the Government’s spending plans from around 13:00. The debate on the Brexit delay bill will then begin around 15:00 before the first stage of voting begins at approximately 17:00. If passed, the Government could then table a motion on holding a general election which is seen as negative for the Pound and may mean that the boost for Sterling is short lived.
?? EUR – A similar pattern was seen yesterday for the Euro. The single currency began the day poorly, moving to a 28-month low against the US Dollar as the market continues to digest the likelihood of further interest rate hikes and accommodative policy continuing for the foreseeable future. Markets are now pricing in an 80% chance of a rate cut next week. However, the Euro also fought back as a consequence of the poor US manufacturing results.
Italian politics will be in focus again today as Giuseppe Conte is expected to meet the President to form a new coalition between the Five Star Party and the Democratic Party. This will deny Salvini the chance to call a snap election and is likely to smooth Italy’s precarious relationship with the EU. The Euro could gain as a result, but this could be tempered by a mixed bag of economic data. Services sector PMI results which are expected to remain in positive territory, but Retail Sales data for July is anticipated to be disappointing. The ECB’s Lane will speak at midday which will be watched for forward guidance.
?? USD – As highlighted above, the US Dollar fell back from recent highs following disappointing manufacturing sector results which fell into contractionary territory. This exacerbated the concerns surrounding the US economy and halted its recent consistent gains which had taken the US Dollar Index to the highest since May 2017.
There are numerous speeches from Fed officials spread throughout the afternoon and it will be interesting to see whether any of them mirror Bullard’s comments from last night that a 50-basis point interest rate cut would align the Fed with market expectations. He called for an “aggressive” move rather than smaller adjustments and if he gains support from peers, the US Dollar may drop further.
GBP: Parliamentary events have given a short-term boost for the Pound
EUR: Euro looking for direction in topsy turvy day
USD: Greenback suffers from poor manufacturing results
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